Unpacking the Productivity Puzzle: New Research Highlights the Challenges for UK Businesses


A consortium of researchers led by SQW and the Institute for Employment Studies (IES) has carried out an in-depth investigation into major business sectors in the UK, looking at 'the productivity puzzle'. The recent poor productivity performance of the UK economy has become a major concern for economists and policy-makers. Existing data on productivity differs from sector to sector, presenting a challenge to those trying to unpick the causes of the recent downturn. Together with the Warwick Institute for Employment Research and Cambridge Econometrics, SQW and IES examined the creative, retail, manufacturing and food manufacturing sectors, plus digitisation and leadership and management as cross-sector issues for concern.

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The consortium has published a set of reports on these topics, which unpack the characteristics of productivity for each sector, outlining the major challenges, looking to the future, identifying priorities for change and how employers and government can help. The sector studies explored published research and data for existing knowledge on the factors impacting productivity in each specific sector. The two cross-cutting reports investigated what we know of the role of management and leadership and digitisation as factors affecting UK productivity across sectors.

Key findings

Creative sector

New datasets created during this project indicate that the productivity of the UK's creative industries varies considerably by sub-sector, but compares well overall with European countries. However, the sector's productivity has been broadly flat since 2000, despite its highly qualified workforce, and has declined relative to the UK economy as a whole. This suggests that the sector is still challenged by the transformation of its business models by digital and internet technologies; by the predominance of micro-businesses; and by the inherent difficulties of managing the creative process in any standardised way. 

Food and Drink

Defined by relatively low value-added but high-volume production and high levels of international trading, food and drink manufacturing will depend on critical skills of strategic management, engineering and food technology to maintain competitive levels of productivity.

Manufacturing

Labour productivity is higher in manufacturing than the UK average across all sectors but productivity fell markedly during the recession, and has struggled to recover to pre-recession levels. Reduced investment in R&D and issues with regard to management and leadership and STEM skills are increasingly inhibitors to productivity growth.

Retail

The changing face of retail has shifted the productivity agenda in the sector with increasing emphasis on digital skills for online sales and for using 'big data' to target activity alongside the need to build a reliable and seamless logistics and supply-chain operation.

Digitisation

The adoption of basic digital technology is now nearly ubiquitous, but the adoption of more advanced applications is more variable – with larger businesses tending to lead the way. SMEs are particularly disadvantaged in using fast-moving technologies, citing lack of time and lack of priority. Meanwhile there are wider challenges of raising digital skills.

Management and Leadership

There is now considerable evidence that management and leadership are linked to firm-level productivity and that the UK is mid-level in terms of measures of management and leadership capability. Improving management skills is inhibited by lack of understanding of what good practice looks like and inability to accurately self-assess organisational management and leadership capability. This suggests greater attention needs to be placed on benchmarking practices and in networking with other firms.